Monetary Policy Committee meet: What has changed from October to now

The Monetary Policy Committee (MPC) meeting is happening against a positive global economic background, according to an RBI MPC preview published by Emkay Research.

"Things are looking better because worldwide inflation is calming down, and economic growth is strong. This makes it easier for the Reserve Bank of India (RBI) to manage financial risks," says Emkay. "Because of this, the RBI doesn't need to sell bonds to show it is ready for higher interest rates and financial risks. The focus is now more on what's happening in India. There needs to be more concern about rising food prices and how slowly the previous policy decisions affect the economy."

The preview says the RBI will gently encourage banks to increase savings account (SA) rates but won't directly tell them to do so. Since the last MPC meeting in October 2023, financial markets have been performing well, which has increased asset prices and reduced bond yields. This improvement is because investors are more confident that the economy can grow without causing high inflation, a situation often called a "Goldilocks state" in the US.They also think that the US Federal Reserve might not tighten financial conditions much more, says Emkay.

"Even though it's still uncertain how inflation trends will develop and how this might affect central bank policies, the recent stability in financial markets is good for emerging markets like India. They can offer higher returns without too much risk," it adds.

This changed from before the October meeting when US Treasury yields and commodity prices were higher, says Emkay.